Canada: Federal Court Of Appeal Dismisses Refusal To Deal Appeal

On June 2, 2011, the Federal Court of Appeal (FCA) released its decision in Nadeau Poultry Farm Limited v. Groupe Westco Inc et al., in which it upheld the decision of the Competition Tribunal to dismiss the appellant's complaint under s. 75 of the Competition Act (refusal to deal). While the appellant was ultimately unsuccessful, both decisions shed light on the limited scope of s. 75, particularly in regulated industries where supply is statutorily restricted.

The Decision at the Tribunal

As discussed in our post of November 19, 2009, this case concerns a dispute between the appellant, Nadeau Poultry Farm, the operator of the only chicken slaughtering plant in New Brunswick, and the main respondent, Group Westco Inc., a chicken producer that, along with its subsidiaries, owns or controls just over half of the chicken production in New Brunswick. In 2007, Westco offered to buy or invest in the Nadeau plant, but negotiations between the parties broke down. Westco made it clear that if Nadeau was not willing to sell its plant, Westco would construct its own slaughtering plant in partnership with Nadeau's main competitor and thereby deprive Nadeau of 50% of its supply. Eventually, Westco gave written notice that it would stop supplying chickens to Nadeau and the other respondents followed soon after, leading to the commencement of a private action before the Competition Tribunal for an order for resumed supply. On June 8, 2009, the Tribunal dismissed the application based on Nadeau's inability to satisfy the five conditions required by s. 75, which require that:

  • a customer is substantially affected in its business or is precluded from carrying on business because it is unable to obtain adequate supplies of a product anywhere in a market on usual trade terms;
  • this occurs as a result of insufficient competition among suppliers;
  • the customer is willing and able to meet usual trade terms;
  • the product is in ample supply; and
  • the refusal to deal is having or is likely to have an adverse affect on competition in a market.

While Nadeau did succeed in satisfying the first and third elements of the test, the Tribunal ultimately determined that Nadeau did not adequately demonstrate that insufficient competition among chicken producers was the limiting factor on supply, that the product was in ample supply or that the refusal to supply was having or would have an adverse effect on competition. Nadeau subsequently appealed the Tribunal's decision to the FCA.

The Decision at the FCA

On appeal, Nadeau raised the following three arguments:

"Insufficient Competition": The first issue on appeal was whether the Tribunal erred in finding that "insufficient competition" among chicken producers was not the cause of Nadeau's inability to obtain supply. On this point, the FCA found that the Tribunal's decision regarding the limit on aggregate supply resulting from the supply management system was a finding of fact, and as a result, this ground of appeal failed. The Applicant's other arguments related to this point were also unsuccessful.

"Ample Supply": The second issue on appeal centered on the question of whether live chickens were available in "ample supply", as required by the s. 75 test. While the FCA found that the Tribunal did not err in defining "ample supply", it rearticulated the definition in positive terms. Specifically, a product would be considered to be in "ample supply" when producers had the capacity to increase production on a timely basis to keep up with increased demand for the product. Under the applicable poultry supply management system, however, producers are unable to increase production to meet new demand. According to the FCA, "[a] market in which increased demand for a product can only be accommodated by diverting supplies from one customer to another is not a market in which the relevant product is in ample supply."

"Adverse Effect on Competition": The third issue refers to whether the refusal to deal had an "adverse effect" on competition. The Tribunal had concluded that, for a refusal to deal to have an adverse effect on the market, remaining market participants would have to be placed in a position of "created, enhanced or preserved market power" due to the refusal. On this point, the FCA found that the Tribunal did not err in limiting the relevant market to the downstream market. Specifically, the FCA rejected Nadeau's argument that the market to be considered should include all markets, including the market in which the Applicant buys chickens. On the contrary, the FCA found that it would be redundant for the Act to require that a complainant demonstrate a "further distortion of the upstream market for live chickens." Rather, the statutory reference to "a" market "is a reference to any relevant product or geographic market into which the complainant sells."

As such, the FCA upheld the Tribunal's decision on the three issues above and dismissed the appeal.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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